Flexible wage deals can boost competitiveness, protect jobs, study says

competitiveness and protect jobs, but only if workers retain effective safeguards, according to a study by the Rockwool Foundation Berlin seen by Reuters on Thursday.

* Germany expanded clauses allowing firms – with employee representatives’ consent – to depart from sector-wide agreements on pay, hours and other terms from the mid-1990s.

* The share of manufacturing agreements containing such provisions rose from less than 5% in 1995 to around 60% by 2004.

* “Wage restraint resulting from increased flexibility already contributed to Germany’s improved competitiveness after 1995,” says co-author Christian Dustmann, director of RFBerlin.

* In Italy, a more rigid bargaining system encouraged some companies to leave employer associations or sign agreements with smaller unions. That reduced wages by between 2% and 3% and lifted the likelihood of workers staying employed by 3 to 4 percentage points.

* There were regional differences: in the more productive north, the fall in wages went hand in hand with greater employment stability. In the south, where employers have greater market power, the wage losses were greater – without any gain in job security.

* “The challenge, therefore, is not simply to make wage-setting more flexible, but to combine this with effective wage protection for workers,” said Dustmann.

(Reporting by Maria Martinez Editing by Linda Pasquini)